Whether you are looking to sell goods in Pakistan or import goods into the country, it is important that you understand the federal excise duty and sales tax in Pakistan. These two taxes affect your business greatly. Depending on the product, you could be liable to pay more or less than the amount you originally planned on.
Excise duty
Federal excise duty is a tax that paid on certain types of goods and services used in the production of other goods and services. In Pakistan, the federal excise duty imposed on imported goods as well as on domestic ones. The rate of excise duty on imported goods is generally higher than that on those produced in the country.
While the excise tax usually decried as a bad thing by those whose livelihoods depend on it, it does have its perks. For instance, it’s a good way to generate revenue without increasing taxes. Furthermore, it is also an effective means to discourage illicit trade in tobacco products. Since cigarettes are a major cause of premature death, taxing tobacco will help save lives in the long run.
However, the most efficient way to accomplish this feat is through a uniform excise tax. This type of tax will not only slash illicit trade in tobacco products, but it will also help reduce the number of people who start smoking. Another reason is that it helps lower health care costs. It estimated that a uniform excise tax of Rs. 44 per pack of twenty cigarettes could cut the number of smokers by 13.2%. A uniform excise tax is a good way to prevent 2.55 million youth from starting to smoke.
The federal excise duty is not the only form of tax that enacted in Pakistan. There are several other types of taxes that collected at the importation stage of the trade. Moreover, there are other taxes that are impose on specific products and services.
Among them, the most notable is the tax on cigarettes. In particular, the new law aims to discourage the consumption of tobacco by imposing a price tag on cigarettes. If it is successful, the government expects it to yield the desired effects. Researchers estimate that the new tax will increase the price of cigarettes by at least 25%. They also predict that the price will decrease the overall cigarette market by 4.7%. Moreover, if the governmental strategy is successful, it may reduce the number of adult smokers by about 400,000.
Regarding cigarettes, the government also recently introduced a third slab of the federal excise duty. According to the Ministry of Finance, the new excise tax on cigarettes is a sensible measure to address the health risks of smoking. Additionally, the law has also helped in improving the efficiency of the excise tax system by removing physical supervision.
The FBR is now aiming to raise up to Rs. 27 billion from tax collections. Although the target is low, it’s still better than the previous tally of 42 billion. Meanwhile, it is likely that the fiscal impact of the new laws will be around 50 to 52 billion.
Sales tax
Federal excise duty is a levy imposed on certain types of goods and services in the manufacturing and service sectors of the economy. This tax calculated in units of percentage or dollar amounts. There are various complexities involved in a tax assessment that is not always simple to understand, so you should consult a qualified accountant for advice.
Sales tax is a multi-point tax that levied at almost every level of government. From the federal to the state to local to the city level. It is not a good idea to ignore unbilled tax, as a seller can be personally liable for unpaid sales tax. Generally, the tax is a percentage of the price of a good, with a maximum rate of 17%. However, there are exceptions to the rule, such as for imports, where the tax can significantly reduce.
The federal government introduced a “special” excise tax on imports of goods produced in Pakistan. For this purpose, it has decided to impose a special FED of one percent. Imports of basic foodstuffs are exempt, as are exports.
Alternatively, the government is also imposing a more complex tax, known as the sales tax, on a range of services. These services not included in the Concurrent Legislative List and charged under different guises, such as the Taxation of Goods (Sales & Purchases) Order. Aside from the name, it is not clear how these taxes administered. As a result, businesses and consumers can have a confusing time tracking and interpreting these fees.
One of the most important aspects of this type of tax is the ability to taxed online. Online transactions became critical during the COVID-19 pandemic. Fortunately, states had the foresight to pass legislation that allowed them to tax these transactions. Likewise, sellers required to register their business with an online marketplace facilitator. These third-party retailers would then sell their products and services on the purchaser’s behalf.
Another aspect of this tax is the fact that it often passed on to consumers in the form of higher prices. However, it is possible to reduce this problem by identifying the tax efficient business models and strategies. You may be able to pass on the sales tax on goods in the manufacturing process, and thereby avoid this burden altogether.
In addition to sales tax, there is also a property tax on the value of your immovable property, including the value of land you own, which levied by the municipal government. Other taxes include stamp duty and duty on clearances, which are payable monthly.
The federal excise duty was originally set to paid by 15-5-2021, but the FBR announced that it will extend until 18-5-2021. The deadline later extended due to the Eid-ul-Fitr holiday in April, and for the rest of the year, the deadline will be on the 15th of every month.
Customs duty
Generally, customs duties levied on imported goods. The rate of customs duty is based on the socio-economic factors. However, there are certain types of items that are exempt from taxes. Among them are medical equipment, and food.
In recent years, Pakistan Customs has become a major source of revenue for the government. It also plays a vital role in the development of the domestic industry. Moreover, the agency is responsible for the prevention of smuggling and for safeguarding the country’s intellectual property rights.
The Federal Board of Revenue (FBR) has imposed new regulatory duties on certain items, including motor spirit and chocolate. As a result, this tax has the potential to generate more than Rs30 billion in revenue in the next year. FBR has also proposed to raise the RD rate of optical fiber cables from 10% to 20%.
Furthermore, the government has introduced a special FED of 1% on imported goods. Additionally, the government has encouraged exports by providing rebates on import duties. The Federal Board of Revenue will collect these duties. This new tax will not adjust against sales tax.
New regulations on sundry non-essential items have also introduced. For example, soft drinks and other non-essential items are also subject to new regulatory duties. Other goods are liable for reduced VAT rates.
Another new tax is the Advance Income Tax. This tax is charge on income earned from sources outside of the country. Usually, it assessed at 17.0 percent on the value of the duty paid for a variety of goods. However, it is adjustable from the final income tax liability.
Additional customs duties also levied on imported goods. In the case of consumer goods, the rates are generally higher than those of industrial plants. However, the rate structure is different for different countries. Often, local taxes included with tariffs.
In the next fiscal year (2021-2022), the government has introduced several new taxes. These include the Customs duty, the Advance Income Tax, and a levy on food. The total amount of these taxes will be around Rs355 billion. Moreover, the government has proposed to increase the federal excise duty from Rs1650 to Rs1850 on cigarettes.
New regulatory duties have imposed on luxury goods, such as soft drinks and chocolate. Other products that have affected include motor spirit, coffee brands imported from overseas, and sugar. According to the FBR, this is necessary to ensure compliance with the CPFTA.
Chairman FBR Asim Ahmad told media briefings that the masses will receive tax reliefs worth Rs85 billion in the upcoming fiscal year. Moreover, the federal government has also proposed to increase the customs duty from 10 to 11 percent.
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